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Paper title: South-North and South-South production networks: Diverging socio-spatial practices of Indian
pharmaceutical firms
Global Networks (forthcoming, part of special issue on Global production networks and new contours of
development in the global South).
Accepted: 27th July 2016
Authors:
Rory Horner
Global Development Institute,
University of Manchester,
UK.
and
Department of Geography, Environmental Management and Energy Studies,
University of Johannesburg,
South Africa.
Email: [email protected]
James T. Murphy,
Graduate School of Geography,
Clark University,
950 Main Street,
Worcester,
MA 01610,
USA.
1
South-North and South-South production networks: Diverging socio-spatial practices of Indian pharmaceutical
firms
Abstract
Less is known about the structures and processes associated with South-South production networks vis-à-vis
those with a South-North orientation. This article explores these differences by taking an inductive approach to
analyse the everyday practices currently employed by Indian pharmaceutical firms to meet production and
quality standards, access markets, and to innovate. Extensive primary interview evidence is used to demonstrate
how Indian pharmaceutical firms employ divergent business practices according to whether oriented towards
Northern or Southern end markets. The findings reveal the significant discontinuities present within the Indian
pharmaceutical industry, and demonstrate how a practice oriented approach to the study of GPNs can help to
identify some of the micro-social processes through which governance is achieved and transformed over time
and divergences in value creation, enhance and capture trajectories between Southern and Northern end
markets.
Keywords: Production networks, Pharmaceuticals, India, South-South, practices
1. Introduction
Global production networks (GPN) and related global value chains (GVC) frameworks have contributed
significantly to our understandings of the ways in which global lead firms based in the global North influence the
development prospects of producers and suppliers based in the Global South (e.g. Gereffi et al. 2005; Coe and
Yeung 2015). In recent years, however, the geography of global trade has changed significantly, particularly with
respect to the prominence of Southern and emerging economies in economic globalization. South-South trade
has grown significantly, from eight to 25 percent of world trade since 1990 (WTO, 2014), and its value is now
2
greater than developing country exports to the global North (The Economist 2013). As the global geographies of
demand and market location have shifted (e.g. Gereffi 2014; Kaplinsky and Farooki 2011; Staritz et al. 2011: 2),
emergent lead firms based in rising power economies such as China, Brazil, and India have also become more
prominent (Sinkovics et al. 2014). In this context, it is worth asking whether conventional GVC and GPN
frameworks, derived principally through research on South-North trade relations, are sufficient to fully
understand the relational processes, governance structures, and development implications of South-South
trade.
This article examines South-South GPNs in order to determine if, and how, these ties are qualitatively
distinct from South-North trade in terms of their governance, industrial upgrading implications and, to some
degree, development outcomes in the Global South. Deemphasising a priori determined structures, coupling
types, and/or value-capture trajectories based on global lead firms’ networks, we draw on practice-oriented
research in economic geography (Jones and Murphy 2011; Jones 2014) to examine qualitatively the everyday
activities through which firms in the global South participate in production and trade relations. Focusing on
Indian pharmaceutical firms’ links to consumers and distributors globally, we inductively analyse their everyday
practices – to meet quality standards expectations, to access markets, and to develop innovation. We elucidate
the heterogeneous factors and processes that differentiate the GPN strands (i.e., distinct or discontinuous
production networks organized and governed through unique sets of practices) associated with Northern,
regulated markets vs. Southern, less-regulated markets.
The Indian pharmaceutical industry is of particular interest as the third largest source of pharmaceuticals
in the world by volume, with significant consequences for economic development and public health globally. For
its key role in supplying low-cost generic medicines, the industry has attracted the title of the “pharmacy of the
developing world” (MSF 2007) and has been central to the global access to medicines campaign. Importantly,
India’s industry has significant heterogeneity with internationally active firms ranging from large emerging
multinational companies (MNCs) to many (ca. 10,000) small and medium enterprises (SMEs) (NPPA 2007). Given
3
that several of the chains and networks through which the industry’s trade relationships occur are not “lead-firm
driven” in the conventional sense (i.e., by Northern MNCs), an inductive, practice-oriented approach offers a
means to make coherent the dynamics, (often overlapping) structures and development implications of the
South-North and South-South GPNs that India’s pharmaceutical firms are active in. The article draws principally
on more than 85 interviews with Indian stakeholders in the industry, including with senior representatives of 57
pharmaceutical firms, and the qualitative analysis focuses on the everyday practices these individuals and firms
rely on in order to participate in particular GPNs.
The analysis of these practices reveals the distinct agencies, spaces, temporalities, institutional features,
and power relations that shape India’s emerging forms of international market integration. Beyond qualifying
the features of the strands, the article also identities key discontinuities between South-North and South-South
GPNs that have significant implications for value enhancement and capture in India and beyond. Specifically, the
article demonstrates the limitations of South-South GPNs as a means through which firms might upgrade their
value creating capabilities. In the pharmaceuticals case, Southern markets offer lower entry barriers and
opportunities for volume expansion and participation to a much wider range of Indian firms, although not the
lucrative revenue opportunities that larger enterprises are able to access in Northern markets. The analysis
shows that there is little likelihood for most South-South dedicated firms to upgrade their production,
marketing, and innovation activities in line with those demanded in higher-value markets given regulatory
structures, capital limitations, and perceptions of quality and trustworthiness. The net result is that South-South
GPNs provide a mechanism for the wider distribution of lower cost and variable quality generic drugs to regions
like Africa, but that the value capture (for both Indian industry and in terms of health for consumers) from
South-South trade is constrained significantly.
The article proceeds as follows. Following a brief introduction to the GPN and GVC literature, we argue
that there is an inclusionary bias in many of these studies given their emphasis on the networks and chains
wherein global lead firms participate. A practice-oriented approach to GPN analysis is then elaborated. The
4
methodology and case-study data from India are subsequently discussed, before an in-depth analysis that draws
out the production/quality control, market access, and innovation practices of firms participating in South-North
and South-South oriented GPNs. We then assess the implications of these practices with respect to their value
creation, enhancement and capture prospects within India and beyond. Concluding remarks build off the
findings here to signpost future directions for GPN research.
2. Global value chain and global production network research: Inclusionary biases and their implications
The global value chain (GVC) and global production networks (GPN) frameworks place emphasis on the
means through which the linkages of raw material and other suppliers to manufacturers, buyers, and,
eventually, consumers are governed through vertical and horizontal relationships (Dicken et al. 2001; Gereffi et
al. 2005; Henderson et al. 2002). A range of actors - firms, industry association groups, states, supranational
organizations, labour unions, and NGOs - shape governance processes and the value creation, enhancement,
and capture outcomes associated with GPN and GVC configurations. However, although there are differences
between the more firm-focused GVC approach and the GPN approach which gives greater attention to non-firm
actors, the activities and strategies of global lead firms are privileged in both these frameworks, given the scale
of their contribution to commodity flows and their power in coordinating international trade (Coe et al. 2004;
Yeung and Coe 2015). As Mayer and Gereffi (2010: 3-4) state:
“the global economy is increasingly organized around international production networks in which large
lead firms, often located in developed economies, control to a significant extent the production of
suppliers, who are typically smaller and likely to be located in developing countries”.
Given these framings, studies typically focus on the ways in which lower tier suppliers based in the global South
are articulated into, and their upgrading prospects within, GVCs and GPNs controlled by (largely Northern) lead
firms.
5
While an emphasis on South-to-North lead-firm driven chains and networks is surely important, most
GVC and GPN studies overlook South-South trade relationships (Horner 2015) and those chains or networks
organized through smaller suppliers, manufacturers, importers/exporters, and other intermediaries. Some
smaller, and even larger, firms may operate largely outside the production networks of global lead firms, yet still
participate in transnational production networks and trade. For example, firms in the same location may be
integrated into a diversity of production networks, each with distinct geographies (e.g., global, regional,
domestic) and/or possibilities for upgrading (Navas-Alemán 2011; Murphy 2012). Although some of these
networks and chains may be less significant in terms of trade volume and the power of individual firms, they
nonetheless play an important role in shaping development processes in Southern economies. The absence of
such firms and networks from mainstream GVC and GPN studies reflects what Bair and Werner (2011) call an
“inclusionary bias”, one that has significant implications for our wider understanding of economic globalization
and its impacts.
As we demonstrate, shifting the focus toward South-South trade and the activities of firms who trans-
nationalize outside conventional GVCs and GPNs can make visible the variety of forms of market
internationalization that exist today, and ultimately help to produce a more multi-centred understanding of
economic globalization and its variegations (Henderson and Nadvi 2011; Murphy 2012). Evidence of changes in
the nature of globalisation and direction of trade suggests that an approach which goes beyond global lead firms
serving end markets in the global North is increasingly necessary. In exploring these emerging forms of trade,
some of the literature has focused on country, and even continent-level, interactions (e.g. Carmody 2011;
Mawdsley and McCann 2011). As a complement, the value chains and production networks frameworks have
potential to provide more actor-centric approaches for examining changing forms of globalisation. While
emerging evidence suggests South-South trade could be characterised by different governance dynamics – both
public and private (e.g. different lead firms, standards requirements, consumer expectations) – and upgrading
opportunities (Horner 2015), considerable uncertainty exists about these differences. To better understand
6
these governance dynamics, we develop a practice-oriented approach for the study of GPN and then apply it to
the case of South-North and South-South relationships of India’s pharmaceutical firms. While recognising that
both GVC and GPN literature are closely related, and inspired by both, we hereafter refer to the GPN approach
as we are particularly interested in how a practice approach reveals the multiple and overlapping forms of
engagement that shape firms’ participation and performance in trade relations, as well as the territorial
development implications.
3.0 “Practiced” GPNs
Practice theory or practice-oriented perspectives in the social sciences have a rich, but loosely
organized, history that draws on the works of several major thinkers including Bourdieu, Giddens, Habermas,
Butler, Goffman, and Callon (see Reckwitz 2002; Jones and Murphy 2011). A key commonality amongst these
scholars is an interest in the study of the everyday worlds and actions of actors as a means to understand,
among other things, social and economic order, power relations, governance structures, and the ways in which
the life worlds of individuals relate to, structure, and/or are influenced by societal systems. As detailed by
Reckwitz (2002), one of the benefits of practice thinking is that it navigates between purely “out-there”
(structuralist) and “in-there” (subjectivist) explanations for phenomena and in a manner that is context
sensitive. Rather than aligning their work along one of these poles, practice-inspired thinkers focus on the
shared knowledges, meanings, representations, and identities that are reflected in the everyday activities shared
by a collective (broadly understood) or group of individuals. The goal is to develop grounded yet generalizable
understandings of the mechanisms or processes through which social orders are established, reproduced,
and/or transformed over time.
For our purposes here, practices are defined as:
7
“stabilized, routinized, or improvised social actions that constitute and reproduce economic space, and
through and within which socioeconomic actors and communities embed knowledge, organize
production activities, and interpret and derive meaning from the world.” (Jones and Murphy, 2011: 366)
Practices are socio-material phenomena that are collectively “owned” by organizations, cultures, communities,
or other groups and which reflect practical or tacit understandings of the world and the ways in which things get
done (Schatzki 2005; Wenger 1998). When integrated or bundled together practices constitute and regularize
social domains or organizational fields such as firms, households, institutions, and markets, thus enabling social
order and predictability to arise (Schatzki 2005). Considered in this manner, practices can be seen to reflect or
instantiate the structures, meanings, values, agencies, knowledges, and spaces that constitute (temporary)
stabilizations of socioeconomic order (e.g., GPNs).
Our application of practice thinking to GPN analysis draws directly on Jones and Murphy’s (2011)
conceptualization and operationalization of practices. In this perspective, practices are understood as
heterogeneous assemblages of agentic, structural, temporal, and spatial elements whose particular formulation
and mobilization will vary from place to place, within places, and over time i. When deployed epistemologically,
this conceptualization offers a means to differentiate between GPN strands and to identify inductively some of
the agencies and structural factors that shape their value creation, enhancement, and capture implications. In
bringing the practice approach to bear on GPN analyses, our contention is that production networks should be
understood as more than simply transactional configurations between firms which exchange goods and services
and/or provide avenues for upgrading. Instead, the relations that structure GPNs are also constituted by shared
identities, meanings, knowledges, rules, norms, values, routines, cognitive schema, and roles that become
temporally and spatially stabilized. A practice oriented analysis can help to unpack these dimensions and provide
a more in-depth understanding of what holds a particular GPN together and creates discontinuities between it
and alternative networks serving different markets or regions. Figure 1 offers a schematic that highlights the
8
relationships structuring GPN and the elements constituting the practices that create, sustain, and transform
these over time.
Working off this framework, the article makes two central claims. First, GPNs are constituted by
interrelated, overlapping, and entangled practices and socio-material arrangements through which inter-firm
and other relationships are governed and commodities are produced, marketed, and exchanged transnationally.
Second, a practice-oriented approach can reveal critical and novel insights regarding the structure and dynamics
of GPNs. Rather than starting with pre-defined categories or parameters that differentiate actors in chains or
networks (e.g., buyer or producer-driven), we argue that a practice-oriented perspective provides a means to
examine inductively how GPN strands are constituted through the everyday activities that firms undertake in
order to remain competitive with, or coupled to, other firms in the network.
Figure 1. Practices and production networks: Relationships structuring (a) GPNs and b) practice
elements
Source: Authors’ construction.
In methodological terms, a practice oriented analysis of GPNs entails a few steps that we demonstrate
below empirically through the case of Indian pharmaceutical firms. Our approach draws inspiration from
9
Nicolini’s (2009) notion of “zooming in” and “zooming out” of practices as a means to study organizational
forms, and it specifically applies Jones and Murphy’s (2011) three-step process – demarcate practices, assess
their constitution and impacts, and generalize about their significance (in this case for GPN studies). The
empirical analysis draws on in-depth qualitative research on India’s pharmaceutical industry to identify,
demarcate, and unpack the core practices associated with South-South and South-North GPN strands. We then
analyse these in relation to their characteristics as specified in Figure 1, determining which combinations of
these are associated with value creation opportunities, value enhancement (upgrading) possibilities, and value
capture outcomes (broadly understood) in India and beyond. We detail these findings below after we first
describe the empirical context of the Indian pharmaceutical case.
4.0 A case study: India’s globalizing pharmaceutical industry
Empirically, the article starts with the notion that there are three primary markets associated with
pharmaceutical GPNs – innovative branded products, quality generics, and low-value generics - each of these
being interlinked in some fashion yet characterised by distinct forms of governance (Haakonsson 2009). The
strand for innovative, patented products is producer-driven and has significant entry barriers due to safety
regulations in economies in the global North where the primary markets are. The quality generics strand is
buyer-driven, with lower entry barriers than that of innovative products, but where quality, reputation and price
are key challenges. It is primarily oriented around Northern markets, but increasingly some higher-income
consumers in the global South. The third strand – low-value generics – does not have lead firms per se and has
thus been described as “non-driven”, operating as an “assembly line” where outsourcing to contract production
and a reliance on trading intermediaries are quite common. This production is mostly for low-income markets in
developing countries.
10
While these categorisations provide a useful starting point, they do not fully explain the entry barriers,
interconnections, and differentiations associated with each strand, particularly as these relate to the evolving
role that firms from emerging economies – especially India – are playing. Now the third largest pharmaceutical
industry in the world in volume terms, turnover in the Indian pharmaceutical industry was estimated at 1,280.4
billion Rupees (approx. $19.17 billion), with exports at 632.9 billion (approx. US$9.5 billion) in 2013-14
(Department of Pharmaceuticals 2014). Less than half of total export revenue (49.4%) arose from the global
North (North America, Europe, Japan) in 2014-15. Most exports were to North America (29%), Africa follows
(21%), then the rest of Asia (19%) and Europe (18%), as indicated by Figure 2. India has the largest number of
United States Food and Drug Administration (USFDA) approved plants outside the US (Business Standard 2014),
but also many more – an estimated total of 10,000 manufacturing units (NPPA 2007) – with considerable
variation in standards. The industry has particular significance for health as well as economic development, with
Indian firms having lowered the price of a range of medicines globally (Hafner and Popp 2011), notably anti-
retroviral drugs used in the treatment of HIV-AIDS (Waning et al. 2011), and having supplied large volumes of
medicines to global donors (e.g. Global Fund) (MSF 2007) – heralding its name “pharmacy of the developing
world”.
11
Figure 2. Export destinations of India’s pharmaceuticals by revenue for 2014-15
29%
21%20%
18%
7%
4% 2% 0%
Export Destinations North America
Africa
Asia
Europe (ex CIS)
Latin America and Caribbean
CIS
Australasia
Others
Source: Compiled from Pharmexcil trade statistics, which are available at:
http://www.pharmexcil.org/uploads/tradestatistics/Country_wise_2014-152.pdf [Last accessed: 10th December
2015]. Data refers to drugs, pharmaceuticals and fine chemicals for April 2014-March 2015.
In order to understand the organisation and dynamics of the GPNs associated with the complex, diverse
and rapidly evolving Indian pharmaceuticals industry, we applied the practice-oriented approach described
above, drawing off more than 85 in-depth interviews that were conducted with stakeholders in the industry (65
of which were with firms – eight trading, 57 manufacturing) in 2009, 2011 and 2012. The interviewees included
senior executives of large, medium and small pharmaceutical firms from a range of locations (Delhi, Ahmedabad,
Vadodara, Mumbai, Hyderabad, Visakhapatnam and Bangalore), representatives of industry association groups,
policymakers and civil society activists. The interviews, conducted almost entirely in person, followed a semi-
structured format and were designed to understand the background to, and current nature of, these firms’
activities as well as challenges in relation to particular issues and policy areas (patent law, foreign investment,
price controls and quality controls). The majority (60%) of the interviews were audio-recorded and later
12
transcribed in full and transferred into NVivo 9™ qualitative data analysis software for coding according to
categories including entry barriers, production activities, quality controls, research and innovation, partnerships
with foreign firms, forms of accessing export markets and challenges in doing so, as well as the influence of
particular policies (e.g. patent law, price controls) and other current and future challenges.
This material was also added to, and triangulated with, additional information about firms from
secondary sources including corporate websites, annual reports, and media releases – extending the
understanding of market presence of individual firms, extent of manufacturing, R&D and marketing subsidiaries,
quality approvals held and corporate strategies. Together, such material facilitated composition of a picture
from the viewpoint of Indian companies regarding their intra-firm capabilities, inter-firm networks, and the
demands associated with different markets. As such, this is a study more aligned with the GPN literature in that
is it is an analysis of the situated and multi-scalar practices and extra-firm relations (e.g., to regulatory bodies,
markets) shaping Indian companies’ engagement with international markets, rather than privileging intra-firm
upgrading dynamics and those inter-firm relations dictated by global lead firms.
5.0 Demarcating the contours and dynamics of Indian pharmaceuticals: A practice perspective
Given Indian firms have limited presence in the innovative-patented segment of the market, we focus on
the characteristics of two particular GPNs – that of “quality generics” in South-North trade and “low-value
generics” in South-South tradeii. Building on previous work which has explored different historical phases of
(de/re)coupling with GPNs in the development of the industry (citation withheld), the focus here is on the
contemporary practices that govern participation in each strand. From the range of interview codes developed
for the wider study, we initially identified three central practices - production and quality control; ii) market
access; iii) innovation - that serve as the basis for the analysis that follows. These practices are collectively
understood by all firms and they are bundled or integrated together in generalizable and analytically distinct
13
ways that create durable distinctions or discontinuities between GPN strands. Moreover, their particular space-
time configurations highlight the multi-faced dynamics of Indian pharmaceutical firms’ participation in the global
economy.
For each of the three practices, we detail – following Figure 1 – the constitutive elements (patterns,
perceptions, performances, power relations, and temporal-spatial characteristics) as these related first to firms’
trade oriented to Northern markets (South-North), and then firms’ South-South trade relationships. Comprised
from a detailed reading of the interview coding as well as systematic analysis of firms’ public information on
corporate websites and annual reports, we elaborate in the following sections on the nature of these
distinctions. While different quality standards and processes characterise each, a wider range of practices are
distinctive for participation in these different GPNs, including how markets are accessed (e.g. relationships with
MNCs, facilities abroad vs. arm’s length traders/distributors), innovation practices (R&D or not, early generic
entry vs. standardised products) and ultimately the possibilities for upgrading.
Table 1 summarises the key findings in relation to these dimensions both with respect to specific
practices, and with a comparison provided of the key distinctions between the South-North and South-South
chains/networks. These findings are highlighted not simply because they are in contrast but because they
constitute the boundaries, discontinuities, or entry barriers that distinguish between the markets served in each
case. It is important to acknowledge that other lines of distinction may be drawn to understand the diverging
export market participation of Indian pharmaceuticals. For example, an additional strand of World Health
Organisation pre-qualified supply by Indian firms via international donor organisations (e.g. the Global Fund) to
countries in the global South (e.g. MSF 2007), along with distinctions between formulations and bulk drugs, large
and small firms, all require further research and may overlap to varying degrees with that provided here. Yet, we
suggest that the practice distinction offered below presents a, and perhaps the, key distinction in understanding
the minimum requirements for participation in, and practices deployed according to, these different networks at
a large spatial scale.
14
Table 1. Practices of Indian pharmaceutical firms in South-North and South-South production networks
15
16
Prac
tice
elem
ents
Prod
uctio
n/qu
ality
cont
rol
Mar
ket a
cces
sIn
nova
tion
Prod
uctio
n/qu
ality
cont
rol
Mar
ket a
cces
sIn
nova
tion
Patte
rns
Spec
ialise
d acc
ordi
ng to
high
re
gulat
ory s
tand
ards
(e.g.
USF
DA,
UKM
HRA)
with
sign
ifica
nt
inve
stmen
ts re
quire
d to o
btain
an
d main
tain
; Pat
ent l
aws
influ
entia
l for
prod
uct e
ntry
Dire
ct pr
esen
ce (m
ostly
m
arke
ting,
regis
tratio
n su
bsid
iarie
s, wi
th so
me
man
ufac
turin
g abr
oad)
; Re
lation
ship
s with
Nor
ther
n M
NCs a
nd m
arke
ts ke
y
Proc
ess-o
rient
ed (o
ften c
ontra
ct)
R&D
focu
sed o
n dev
elop
men
t; So
me a
ttem
pt at
prod
uct
inno
vatio
n
Lowe
r qua
lity r
equi
rem
ent;
Cost
man
agem
ent;
Less
“sho
wing
-off”
of
facil
ities
Som
e dire
ct pr
esen
ce, b
ut m
ostly
th
roug
h Ind
ian-b
ased
distr
ibut
ors
and t
rade
rs; So
me l
ong-
stand
ing
ties
Little
R&D
of an
y kin
d
Perce
ption
s
North
ern q
ualit
y sta
ndar
ds
desir
able
, ach
ieva
ble a
nd
worth
while
; Glo
balis
ed
aspi
ratio
ns –
lead
ersh
ip in
ge
neric
s.
North
ern m
arke
ts pe
rceive
d as
mos
t-luc
rativ
e; Pe
rcepti
ons a
bout
be
ing q
ualit
y con
scio
us; E
xter
nal
perce
ption
s of I
ndian
quali
ty
(esp
. in N
orth
ern m
arke
ts)
signi
fican
t
New
drug
or ac
tive-
ingr
edie
nt
disc
over
y nea
r im
poss
ible
whe
n co
mpa
red w
ith w
hat M
NCs i
n co
re ec
onom
ies c
an ac
hiev
e;
Mov
ing i
nto t
his c
hain
diffi
cult
for
SMEs
North
ern q
ualit
y con
trol
requ
irem
ents
too c
ostly
; High
sta
ndar
ds no
t nec
essa
ry; M
odes
t aim
s – su
rviva
l; victi
ms o
f shi
fting
re
gulat
ory l
ands
cape
Lowe
r bar
riers
than
Nor
ther
n m
arke
ts, bu
t reg
ulat
ory s
tand
ards
gr
adua
lly in
creas
ing a
nd st
rong
co
mpe
tition
(esp
ecial
ly do
mes
ticall
y)
Impo
ssib
le to
expe
ct to
glob
alize
an
d bec
ome a
lead
ing fi
rm; m
any
firm
s hav
e mod
est a
spira
tions
an
d inn
ovat
e aro
und t
he m
argin
s
Perfo
rman
ces
“Glo
bal”
imag
e man
agem
ent;
Dem
onstr
ating
resp
ect f
or
pate
nts a
nd pa
tent
law;
Qua
lity
insp
ectio
ns an
d (hi
gh-le
vel)
certi
ficati
ons
Inte
rnati
onal
orie
ntati
on;
Trus
twor
thin
ess r
egar
ding
quali
ty
and i
nnov
ation
Impo
rtant
to de
mon
strat
e bei
ng
“inno
vatio
n-or
ient
ed” (
as
oppo
sed t
o im
itatio
n)
Imag
e man
agem
ent l
ess a
focu
s; Ke
en to
sugg
est S
MEs
can s
till
play
role
in in
dustr
y and
quali
ty is
pr
actic
ed ev
en w
ithou
t high
sta
ndar
d app
rova
l
Mee
tings
with
who
lesa
lers,
tra
ders
and d
istrib
utor
s; Re
liabi
lity a
nd tr
ustw
orth
ines
s ke
y
Little
expl
icit e
fforts
to
dem
onstr
ate a
rese
arch
-or
ient
ation
Powe
r
Signi
fican
t fina
ncial
reso
urce
s and
ca
pabi
lities
need
ed to
pa
rticip
ate;
Glo
bal M
NEs a
re ke
y bu
yers
and h
ave m
arke
ting
cont
rol; L
arge
Indi
an fi
rms b
etter
pl
aced
to su
pply
com
pare
d to
SMEs
Regu
lator
y bar
riers
and o
fficia
ls ar
e cru
cial; T
rust
has t
o be e
arne
d by
Indi
an ph
arm
a firm
s in r
elati
on
to N
orth
ern M
NCs a
nd
cons
umer
s.
Costs
and k
nowl
edge
/cap
abili
ties
asso
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d with
drug
disc
over
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ate i
nequ
alitie
s bet
ween
In
dian
phar
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NCs i
n the
No
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Limite
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any fi
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to in
fluen
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with
som
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re fo
r high
er re
quire
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ts by
firm
s alre
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gulat
ed m
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Som
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Es ha
ve de
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parti
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supp
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polic
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Com
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xclu
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iven s
cale
of
inve
stmen
t inv
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Time
Time t
o get
regu
lator
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rova
l (q
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Med
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-term
persp
ectiv
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retu
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ther
n m
arke
ts; Pa
tent
cycle
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Esta
blish
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t of l
ong-
term
ties
to
new
mar
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depe
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of ce
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, sub
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quisi
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regis
tratio
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Long
-tim
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disc
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in
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Med
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time
horiz
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hort-
term
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tena
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key
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ts fo
r Nor
ther
n m
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ts; Sl
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oder
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mul
ti-sit
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Man
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sidiar
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som
e man
ufac
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g abr
oad.
Mar
ketin
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regis
tratio
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ces
and s
ome p
rodu
ction
facil
ities
in
key m
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ts
Dedi
cate
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facil
ities
, in
cludi
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Nor
ther
n mar
kets
Sepa
rate
plan
ts fro
m th
ose f
or
North
ern m
arke
ts; So
me s
ingle
-sit
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pany
on m
ulti-
purp
ose
indu
strial
esta
te.
Little
dire
ct pr
esen
ce ab
road
No de
dica
ted R
&D fa
ciliti
es
Sout
h-No
rth G
PN Pr
actic
es
Sout
h-So
uth G
PN Pr
actic
es
5.1 Firms in quality, branded generics, South-North GPNs
The ability to manage regulatory requirements and sometimes complex marketing dynamics means that
firms participating in this strand face significant entry barriers. High costs and an extensive amount of
knowledge are needed for firms to obtain regulatory approval from bodies such as the USFDA and the United
Kingdom Medicines and Healthcare Products Regulatory Agency (UKMHRA). Moreover, firms need significant
marketing capabilities within these markets – hence Indian enterprises often enter through marketing
agreements with lead firms already present. It is the larger Indian firms which are present in this stand. Of the
57 manufacturing firms interviewed, 18 have presence in these markets –including all 8 of the top 30 ranked
firms interviewed, along with 6 of the 7 ranked 31-100 (as per 2011 sales from Centre for Monitoring the Indian
Economy’s Prowess database). The only somewhat smaller firms present are specialist bulk drugs manufacturers
which do not market directly to consumers. The large firms often have many subsidiaries (averaging 21.8 for the
18 firms in this strand), with 14 having marketing and financial subsidiaries in Northern markets (the four
exceptions being the smaller bulk drug firms). Eleven of the interviewed firms present have manufacturing, and
six have R&D facilities, meaning these firms have considerable direct presence.
5.1.1 Production and quality control practices
For branded generics firms who produce for Northern consumer markets, production and quality-
control practices play a key role in determining whether they can participate in this chain. Such firms commonly
aspire to becoming global leaders, perceiving Northern consumer markets as offering greater growth potential
compared to the fragmented, low entry-barrier, and thus competitive, Indian market and lower margin markets
elsewhere in the global South. Indeed, the largest Indian firms have substantially increased their revenues from
exports (see Figure 3 below), mostly driven by North American and European expansion over the last 15 years.
17
Figure 3. Exports as % of revenue for 10 largest Indian-owned pharmaceutical firms
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-150.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0Cipla
Dr. Reddy's
Lupin
Aurobindo
Sun Pharma
Cadila
Glenmark
Torrent
Jubilant
Ipca
Expo
rt %
of t
otal
reve
nue
Notes: Data sourced from company annual reports. Top ten ranking by net sales data on
http://www.moneycontrol.com/stocks/marketinfo/netsales/bse/pharmaceuticals.html [accessed 10th
December 2015].
For those top 10 firms providing a geographic breakdown of their exports, Aurobindo (94.1%), Jubilant (81.3%),
Dr. Reddy’s (69.1%), Lupin (66.2%), Glenmark (63.5%) and Ipca (54.2%) all drew a majority of their exports from
either “US and Europe”, “North America and Europe”, “Americas and Europe” or “advanced markets”.
Gaining access to these markets is a core challenge, however, given that production and quality-control
standards are strict for the highly regulated markets of Europe, North America and Japan, with USFDA being the
gold standard, given the US is widely estimated to be 33-40% of the global market. Only the largest Indian firms
possess the capabilities to meet such standards and to file the required Abbreviated New Drug Application
18
documentation. Given the higher cost of production involved, such firms typically construct separate production
facilities to serve the markets requiring USFDA or European standards. Beyond the costs and challenges required
to meet Northern quality-control standards, participation in branded generics’ markets requires a different
culture of sorts when compared to less regulated (e.g. domestic) markets, as an interviewee observed:
“we have got a few facilities which are approved by USFDA. The culture has changed. So because of
USFDA, MHRA, PMDA from Japan, we have identified facilities where culturally you have to be very
different. The upkeep of the facility, the maintenance” (Interview, large firm, Hyderabad, 09 th November
2011).
The production and quality control practices demanded of branded generics firms present in Northern
markets also relate to their aspirations with regard to global leadership and excellence. The mission statements
and visions listed on websites all these firms maintain sometimes reflect these ambitious goals. For example,
Marksan’s simple vision is “to create a global pharmaceutical company” [Accessed 14th December 2015], while
Aurobindo’s vision claimed “[we will] become Asia's leading generic Pharma company and one among the top 15
in the world, by 2015” (accessed 14th December 2015). Such aspirations are also manifest in performances that
demonstrate branded generics firms’ respect for quality controls and certifications, a key aspect of their image
management.
To further highlight this respect, as well as their production capabilities, most firms’ websites contain
glossy pictures of what are sometimes described as their “world-class” facilities. With consumer perceptions in
the North crucial regarding generic products, especially those from India, avoiding a Form 483 warning letter
from the USFDA and product quality fraud is essential to maintaining positive reputation and consumer trust (cf.
the Ranbaxyiii 2013 case – Business Standard 2013). Not surprisingly in this regard, many branded generics firms
are quite dismissive of the capabilities of smaller firms to participate in this strand. One representative from a
large firm claimed:
19
“the small guys….. the cost structures are different, the practices are different. Suppose if the
government comes and says, look, you have to follow all the environment controls, I don’t know how
many of these small scale guys can survive” (Interview, large firm, Hyderabad, 09th November 2011).
The power of these larger firms vis-a-vis their smaller competitors is enhanced through support from the Indian
government and through organisations such as the Indian Pharmaceutical Alliance and the pharmaceuticals
section of the Confederation of Indian Industry to represent the global image of the modern, Indian
pharmaceutical industry.
Lastly, there are notable temporalities and spatialities associated with the production and quality-
control practices of branded generics firms in the South-North chain. Temporally, because significant financial
investments are required in order to have production facilities that meet the standards of Northern markets,
firms take a medium to longer-term perspective on the value capture benefits that can come from upgrading.
Spatially, as noted above, nearly all of these firms are located in multiple sites, with an average of 9.7
manufacturing facilities each. Production is typically separated geographically from both the sleek, modern
headquarters, and separate production facilities (even for similar products) are dedicated to domestic and other
Southern markets versus regulated, Northern markets. Strides Arcolab (2014-15 annual report, p. 2), for
example, distinguishes its eight manufacturing facilities as “two US FDA approved and six emerging market
facilities”. Moreover, some firms have multiple different plants, each dedicated to specialised product lines (e.g.
tablets, capsules, liquids etc.). Many also have direct presence (sales and marketing, manufacturing, R&D) in
regulated markets, as noted above and below.
5.1.2 Market access practices
For branded generics firms, gaining successful, long-term access to Northern markets requires that they
do much more than meet required quality control standards. Specifically, these firms commonly deploy multiple
strategies to “plug in” to production networks, and ultimately markets, controlled by big pharmaceutical firms.
20
Many companies are engaged in contract manufacturing for MNCs with one interviewee noting that these
partnerships allow Indian firms to concentrate on manufacturing, where they have expertise, while the partner
company focuses on marketing-related activities:
““they take care [of] the front-end which is their forte. They have got much [more] marketing
penetration through their relationship with the distributors than any of the generics companies can
have, while they leave the back-end to the Indian companies which is their forte” (Interview, large firm,
telephone, 22nd July 2009).
Such strategies are driven by the considerable marketing advantage which global big pharma can possess in
Northern markets, which makes going-it-alone a highly risky proposition. As one respondent noted:
“unless you have a tie up with a company of a similar size who is willing to buy that product, no point me
getting US approval” (Interview, SME, Bangalore, 25th November 2011).
The desire to gain access to, and succeed in, Northern markets, has also pushed many large, Indian firms to
create a global orientation with respect to their product portfolio, focusing on producing generics for
therapeutic segments such as cardiovascular and diabetes (Interview, large firm, Mumbai, 21st July 2009).
Perceptions around generics and Indian products can also affect access to these markets, given oft
superficial perceptions about quality and the power that consumers, firms and regulatory authorities in the
global North hold in determining what products reach the shelves of pharmacists. Even when they have reached
the necessary production and quality requirements, many firms struggled initially with the reputation of
generics and Indian products in Northern markets (Interview, large firm, Hyderabad, 17 th November 2011).
Moreover, Indian pharma has also faced the lobbying power of MNC industry association groups in North
America and Europe, most notably around intellectual property issues, which can affect access. To counteract
these perceptions, branded generics firms enact performances and strive to build reputations as reliable,
21
conscientious, and trustworthy manufacturers for Northern consumer markets. Developing such a reputation
takes time, however, and demands multiple successful shared experiences with major partner (“buyer”) firms,
who have significant marketing presence, and in absence of controversies related to Indian manufacturers more
generally.
For a relatively small number of companies (notably Dr. Reddy’s, Glenmark, Sun Pharmaceuticals),
market access practices involve establishing sales forces overseas or acquiring manufacturing plants in Northern
markets. In the first instance, companies also seek to market under their own brand in these regulated markets
because of the higher returns (Interview, large firm, Mumbai, 22nd July 2009). In the second instance, a small
number of firms have acquired manufacturing plants abroad. For example, Aurobindo has made acquisitions in
the US, UK and the Netherlands. Many set up subsidiaries to facilitate their operations – notably for marketing
and registration purposes, to assist the launch of products (Interview, large firm, Mumbai, 23 rd July 2009).
Temporally, given production is end-market specific and cannot be easily switched, gaining access to
markets in the North takes patience with respect to return-on-investment expectations. As with production and
quality control practices, the scale of investment required for accessing markets such as the US can be extremely
large and uncertain.
“It’s a big investment which has a long gestation. If I decide to set up a factory only for the US market
then, say for the next 3, 4 or 5 years, I may not have any business until the approvals go through, and
the inspections happen. Then you put the product in the market” (Interview, SME, Bangalore, 21st
November 2011).
Yet acquisition of a facility in the regulated market can accelerate entry. An interviewee noted: “probably you
saved at least two or three years of time. You bought an understanding of the market which you never had. You
don’t know how market in UK functions or in US functions if you’re sitting in India and you’ve never been there”
(Interview, large firm, Mumbai, 21st July 2009). All of this requires a “local presence” and thus there is a distinct
22
geography associated with market-access practices. One interviewee observed that “our footprint has gone
away from India to more global” (Interview, large firm, 09th November 2011, Hyderabad) with his firm now
sustaining offices or facilities in twenty countries. More broadly, many Indian firms now have a global network of
offices, which is enhanced and supplemented, as outlined above, by a range of partnerships with Northern
pharmaceutical firms, so as to help secure market access.
5.1.3 Innovation practices
Although firms in the branded generics strand may seem to be less innovative than those involved with
the new drug discovery strand, innovation is crucial for their success and survival. Over the last two decades,
particularly since India’s transition to the World Trade Organisation’s TRIPs Agreement (agreed 1994, final
adjustment 2005), Indian firms have started investing much more heavily in R&D. One estimate suggests that
the 37 largest Indian firms have on average increased such expenditure from 1.39% of sales to 7.04% between
1992-3 and 2007-08 (Chaudhuri et al. 2010: 47). A sea change is underway for these firms, as evidenced by the
observation of an interviewee from a large, Mumbai-based company when he highlighted the shift from “India-
centred business to a global business that also does proprietary research” (Interview, large firm, Mumbai, 22nd
July 2009). It is important for these companies to be seen to be research-oriented as it creates opportunities to
collaborate with, rather than infringe on, global lead MNCs – and thus also influences access to global markets.
Innovation practices among branded generics manufacturers generally involve process-oriented R&D
and the development of formulations for drugs about to come off patent. Some of the larger companies target
immediate generic entry, which requires considerable awareness of patent filings elsewhere, as well as legal
knowledge:
23
“The earlier copying had no regard for patents. The generics formulations or R&D of this period has to
have a dedicated IP [intellectual property] department which would go through every patent, figure out
how to do it, have a legal set of people” (Interview, large firm, telephone, 28 th July 2009).
Spatially, many of the larger firms participating in the South-North GPN have dedicated R&D facilities (16 of the
18 interviewed), mostly in India, but a few abroad in the global North (e.g. Dr. Reddy’s, Sun Pharma, Lupin,
Cadila, Glenmark, Jubilant Lifesciences). As such, there are important geographies associated with innovation in
branded generic firms. Ties to global lead firms can also be drivers of innovation, with contract manufacturing
serving as a way to learn MNC processes through medium term supply arrangements (with quality approvals
and registrations site specific) (e.g. Interview, large firm, telephone, 25th July 2009). Meanwhile, contract
research provides a learning opportunity, but also significant revenue:
“We have research and development alliances which are essentially out-licensing of our molecules to big
pharma players for them to continue the development and we monetise the asset basically” (Interview,
large firm, Mumbai, 22nd July 2009).
As noted above, Indian firms serving Northern markets make significant efforts to demonstrate
(through websites, corporate reports, and other performances) that they are respectful of patent regulations,
signalling a departure from the pre-2005 period of imitation when no product patents were in place in India.
Moreover, some branded generics firms emphasise their research, rather than copying, orientation. For
example, in its annual reports, Lupin has consistently expressed a vision of being “an innovation-led,
transnational pharmaceutical company”, while Dr. Reddy’s has highlighted in its vision its desire “to be a
discovery-led global pharmaceutical company”. Indian firms have faced consistent barriers to upgrading into the
new drug-discovery strand, a reflection on the power relations, costs, and capability limitations that differentiate
this GPN strand from the leading innovators in the industry. As one interviewee admitted upon reflection on his
firm’s experience when trying to invent a new chemical entity (NCE): “we are not inventing NCE, new to the
24
world. We came close to seven and we have to scrap all seven” (Interview, large firm, Hyderabad, 09 th
November 2011). For some, the scale of investment required is just too much, with one noting that after a
couple of stages of trials, Indian companies license out the molecule because they “don’t have the money” to
develop it further (Interview, large firm, Mumbai, 20th October 2011). This occurs in spite of the existence of
government support for investing in R&D through the Pharmaceutical Research and Development Support Fund
(set up in 2004-05). Significant time (15-20 years), as well as money, is required for innovations related to new
drug discovery and this further ensures that branded generics firms focus on process innovations and on actively
monitoring the so-called patent cliff for generic products about to come off patent.
5.2 Firms in low-value generics, South-South GPNs
Regulatory requirements in the Indian domestic market and most iv other Southern markets are much
lower than in Europe, North America and Japan, with the result that entry barriers are far less burdensome.
Given the focus is mostly on the production of long-existing products (e.g. pain relievers, etc.), even SMEs are
able to participate in the low-value generics strand, often through merchant exporters or distributor
arrangements. Many firms supply Southern markets, including the 18 interviewed which are also present in the
South-North strand. Of the 57 firms sampled in this strand, 32 are solely present in South-South exporting, while
seven produce exclusively for the domestic market. Although the large firms active in the South-North chain are
also active here, mostly different practices are used in production. For example, generics for Southern markets
are produced in manufacturing facilities that are separate from those used for Northern markets, while R&D is
directed more to Northern markets, and many firms which have a large direct presence in other Northern
markets do not have the same presence in Southern markets. Moreover, it should be acknowledged that there is
a growing branded generics strand within Southern markets, with some Indian firms seeking to capture higher
returns from marketing. Irrespective of these nuances, the practices described below constitute a key
discontinuity vis-à-vis trade with Northern markets.
25
5.2.1 Production and quality control practices
The highest quality regulatory standards, such as the USFDA or the UKMHRA, are not required for
production of low-value generics, with some modest (or, in some places, non-existent) standards in place. Thus
many firms can meet the production and quality control standards demanded in this strand. As noted above,
there are significant overlaps between branded and low-value generics chains given that some of the larger
firms participate in both markets. However, given that production and quality control practices differ for the
South-South market, firms participating in both strands maintain different, lower-cost facilities for lower-value,
South-South generics. Multiple interviewees suggested that drugs produced according to Northern regulatory
standards can be too expensive to compete in Southern markets. As one interviewee explained:
“once you have facilities and you have software in terms of manpower to meet USFDA requirements,
then contract manufacturing for the domestic market is not possible - different cost profile, very
different cost profile” (Interview, SME, Bangalore, 21st November 2011).
Some large firms also subcontract the manufacture of low-value generics to smaller and medium-sized firms
who produce at a lower-cost according to the requirements of Southern markets. Such smaller firms are well
positioned to do so as they are flexible and focus on a smaller number of products (Interview, SME, Bangalore,
25th November 2011).
For firms participating in this low-value generics strand, “showing off” their facilities is less of a priority
given that cost management is a key concern. Although the lack of such performances may seem to work
counter to a manufacturer’s ability to be legitimated, they do not play as significant a role in the South-South
strand when long-term trusting personal ties exist and one’s credit is good. Despite downplaying the quality of
their offices and manufacturing facilities, low-value generics firms are keen to emphasise that they engage in
quality-control practices. One interviewee, for example, stated: “the quality control is there….as per IP [Indian
26
Pharmacopoeia] specifications” (Interview, SME, Delhi, 13th September 2011). Another producer distinguished
specifically between practising quality and passing inspections:
“inspection is maybe once in a month, twice in a month, but what you do every day, should be what is in
writing. What you have to do for this profile, then you should do it accordingly” (Interview, SME,
Mumbai, 19th October 2011).
Such practices are important given that quality standards are increasingly regulated in the Indian
domestic market, as well as other Southern markets, and this poses an existential threat for smaller firms. A
number of interviewees from smaller firms reported that meeting quality approvals in India is becoming more of
a challenge, especially since schedule M quality standards were introduced as a revision to India’s Drug and
Cosmetic Act, 1940. As an interviewee said: “For schedule M it was a huge investment for the norms were
something very much…. They didn’t think of the small manufacturers” (Interview, trading firm, Mumbai, 24 th
October 2011). As another interviewee stated:
“Small scale industry is very difficult to survive. The reason is regulatory aspects, competition in the
market and the investment is becoming more and more for quality control” (Interview, SME, Hyderabad,
30th October 2011).
Such challenges are perceived by some as a product of a regulatory environment that reflects the power of
large-scale firms to push for increased quality standards in order to make it increasingly difficult for smaller
producers to survive. For example, one interviewee referred to a perception amongst smaller manufacturers
that the larger companies are pursuing the government to implement higher quality standards “so that they can
wipe out the competition in the smaller markets” (Interview, SME, Vadodara, 08th October 2011).
Not surprisingly, perhaps, small-scale firms serving the low-value generics market operate on shorter
time frames, unable to make the kinds of large-scale capital investments that would demand longer-term
horizons. Moreover, such firms believe they are threatened in the longer-term and this further limits their
27
willingness and ability to upgrade their facilities. One interviewee noted, “[In the] next 20 years I don’t see
pharma small sector existing anywhere in the world. That is my forecast” (Interview, SME, Vadodara, 11 th
October 2011). Spatially, these firms sustain much more modest business offices which are commonly co-
located with their manufacturing facilities on industrial estates on the periphery of India’s largest cities. Some
companies are located in a shared office building in a large city, with plant elsewhere, but most (56%, 22 of the
39) have the full operation on one site. Many small firms involved have small offices or occupy just one floor of a
multi-storey building, with little signage outside. Some of these visual appearances run contra to what a
Northern impression of a pharmaceutical company might be like – unlike those facilities oriented towards
participating in the South-North production network.
5.2.2 Market access practices
In contrast to the South-North GPN, having a direct presence in the export market is not a requirement
for low-value generics firms serving Southern markets. While some larger firms have set up manufacturing
plants in these contexts – e.g. Aurobindo (Brazil), Cipla (Brazil, Morocco, Uganda, South Africa, Uganda), Cadila
(Ethiopia), Ajanta (Mauritius) and Sun Pharmaceuticals (Bangladesh, Egypt, Malaysia, Mexico, Nigeria, South
Africa), none of the interviewed firms solely participating in this strand have manufacturing or R&D abroad.
Instead, most exporting firms operate through India-based distributors and traders (Chaudhuri et al. 2010), who
buy the products and resell these internationally, with the manufacturer sometimes not even knowing where
the products end up. Other smaller firms gain access to international markets through the establishment of a
relationship with a local representative in a foreign country who can manage the distribution of drugs to the
local market. As one interviewee explained:
“In exports what we’re doing in every country is appointing a distributor network. We are not doing the
direct marketing. We are just passing on our goods to them” (Interview, SME, Delhi, 03rd September
2011).
28
Competition and government regulatory expectations, both domestically and internationally, can play a
key role in perceptions of markets to access and their entry barriers. Domestically, India’s pharmaceutical
market is perceived as increasingly difficult to stay competitive within due to existing competition from the
many firms within India and growing regulations. Alternatively, Southern markets are seen as offering greater
potential for expansion given that South-South GPNs can be far easier to access than more regulated markets,
offering significant opportunity for growth and profit-taking:
“the price advantage is there. Registration process in those [developing] countries is still very easy
compared to trying to enter US market or UK market - more regulated markets” (Interview, SME, Delhi,
03rd September 2011).
Beyond smaller firms, large generic companies from India also target developing country markets, further
highlighting the dual positionality that these firms sustain in both South-North and South-South strands. As one
interviewee indicated:
“there is tremendous opportunity in[to] the emerging markets, in[to] the African markets, where the
profitability is comparatively better and the regulatory environment is quite friendly. So companies have
targeted those markets” (Interview, large firm, Mumbai, 20th July 2009).
Firms participating solely in South-South trade do not as clearly make an effort to construct an image, or
be perceived, like a Northern-pharmaceutical company, unlike those in the South-North GPN. A few (17.9%, or 7
of 39) do not have their own website, with their contact details listed on a site such as medindia.net or
indiabizclub.com. For many of these companies, marketing activity and decisions seemed to be coordinated
through one person and his (all the SME interviewees were men) phone. Gaining access to markets thus often
depends on the ability of individuals to build interpersonal relationships with distributors and intermediaries
able to connect them to Southern markets. This micro-scale or experiential trust (see Murphy 2006) is
particularly important for firms participating in the South-South GPN. Traders and distributors can act as key
29
“middle-men”, sharing some of the payment risk and providing key contacts in the local market, such as with
local representatives and doctors who may prescribe their products. The establishment of long-standing ties
may be, in fact, essential to access markets and distribute products and this can entail significant investments in
time and shared (successful) experiences:
“You start slowly in the export relationship. Have business to business meetings. They visit India. [You]
May attend an exhibition abroad. Through dialogue, a rapport is built up. If it is positive, you increase
the volume. If it goes wrong, the relationship is broken. Mutual trust is important” (Interview, SME,
Ahmedabad, September 20th 2011).
Despite the importance of long-term relationships, these can always potentially be switched to
alternative intermediaries as opportunities arise. As such, the temporal dimension of market access practices in
the South-South GPN is more compressed than that of the South-North GPN. With less regulatory requirements
in some of these markets and brand-building not always necessary, entry can be quicker. Spatially, direct
presence in Southern markets is not required, meaning that firms participating in this GPN often conduct more
activities through long-distance trading relationships rather than investing significantly overseas. As such, the
geographical locations of production and management activities often remain as they would be if the firm only
sold in domestic markets.
5.2.3 Innovation practices
As is the case with branded generics, few, if any, firms solely participating in the low-value generics
strand engage in new drug discovery, and only a small number do a bit of process research. R&D is perceived as
too expensive and many self-describe their firms as being in a “commodity business”. Indeed, outside the top 37
companies, the R&D expenditure is less than 1% of sales (Chaudhuri et al. 2010: 47). As one interviewee stated:
30
“Ours is a very medium company and we don’t have much, very big R&D facility, like [Dr.] Reddy’s have
and all ….. Our area is only to develop this product” (Interview, SME, Hyderabad, 03 rd November 2011).
Another interviewee said that:
“small scale manufacturers….. they can’t afford R&D. The R&D is a big cost. ….. So virtually you are
manufacturing the same products which others are doing” (Interview, SME, Delhi, 12 th September 2011).
Even in the case of generics, these firms are generally not aggressive in striving to imitate drugs just coming off
patent. As such, most smaller firms participating in the South-South GPN make little reference to patents, the
monitoring of patent expiry, or to goals of being a “research-oriented” company.
The lack of investment in facilities for, and capabilities in relation to, R&D puts smaller firms at a
significant disadvantage compared with those producing quality, branded generics, and by-and-large relegates
these firms to highly competitive markets where profit margins can be extremely thin. The innovation practices
that do exist are more reactive than proactive – aimed at short-run, profit-sustaining objectives rather than with
the goal of upgrading capabilities such that they are aligned with those demanded in more regulated, higher-
quality markets. In fact, it makes little or no sense to these firms to engage even in medium-term activity in
order to do this. Spatially, firms have little by way of any R&D operation, let alone a dedicated facility (only 5 of
the 39 firms specialising in this strand do R&D, compared to all 18 firms which participate in the South-North
strand). Acting at a distance in Southern markets is thus logical and innovation practices reflect a circumstance
where it is clear that it only pays to improve things that will immediately affect the firm’s bottom line, not create
uncertain, long-term possibilities for moving into higher value markets.
6. Implications for value creation, enhancement and capture
Beyond detailing the discontinuities between different GPN strands, this analysis of practices can help us
get to a more refined understanding of the value creation, enhancement and capture trajectories as they relate
31
to Indian pharmaceuticals, as outlined in Table 2 below. With respect to value creation, the practices
constituting South-North GPNs create significant value, notably through the production of off-patent drugs for
sale in the US and Europe. Although entry barriers are high, such markets are lucrative compared to the highly
competitive domestic markets and lower margins in Southern markets (i.e., volume versus quality/branding). In
contrast, practices in the South-South GPN are not geared toward enabling these firms to upgrade their value-
creating possibilities given the costs of, and risks associated with, the investments needed to do so. This lack of
investment or practices that might lead to the kinds of capabilities associated with Northern markets in essence
confines the firms which solely participate in this strand to the low-value generics GPN realm. In other words,
the practices that enable specialist South-South firms to create value are poorly aligned with those of quality,
branded generics, and cannot be expected to converge with these over time given the structural environments
constituted by pharmaceutical regulations, quality standards, and the general lack of trust given to these firms in
Northern consumer markets.
32
Table 2: Value creation, enhancement and capture for Indian pharmaceutical firms in South-North and South-
South GPN
South-North GPN South-South GPN
Value creation
Manufacturing of wide range of bulk drugs and formulations, including those just off-patent; Direct presence; Activity spread widely internationally
Production of bulk drugs and formulations of products long off patent; manufacturing mostly from India, sometimes at single site location; exports often arm’s length through traders & distributors
Value enhancement
Upgrade quality to meet and maintain high regulatory standards; secure market access through partnership with global MNCs; process innovation
Volume expansion, yet significant competition; Regulatory standards increasing from a low base
Value capture
Significant revenues earned in Northern markets, yet benefit not fully captured as Indian firms have limited own marketing or new product innovation; Consumers access relatively cheaper generic medicines
Lower prices, shared with Intermediaries (traders and distributors); Consumers can benefit from lower cost medicines, although quality in some cases can be uncertain with weak regulation
In terms of value enhancement or upgrading opportunities, the South-North GPN provides significant
opportunities if firms can afford to invest in facilities, process R&D and/or production for Northern MNCs. For
the South-South GPN, although entry barriers are quite low, the practices of these firms indicate that there are
few incentives to upgrade dramatically given that costly innovations may go unrewarded in the highly
competitive consumer markets these firms serve, and because the extreme costs, time delays, and risks
associated with upgrading to Northern standards means that this is simply not an option for most if not all of
these firms, particularly the SMEs. On the contrary, branded generics firms who also participate in Northern
markets are more easily able to “downgrade” their activities to serve Southern and domestic markets, thus
further squeezing low-value generics firms only able to serve this market. In other words, some larger, branded
generics firms can practice and be successful in both GPNs.
33
Lastly, with respect to value capture, the practices of firms in both chains and networks reveal
preliminary findings with respect to their development implications. The South-North GPN represents a high
road in terms of value capture for Indian firms as well as consumers in the global North able to benefit from
relatively lower-cost drugs. Through the South-South value chain, Indian pharmaceutical firms do have the
possibility to increase the availability of basic pharmaceuticals in the global South and at an affordable price. At
the same time, there is also the possibility of poorly regulated supply which could be damaging to the health of
consumers through limited quality. More research into these implications is clearly needed.
7. Conclusion
The globalization of Indian pharmaceutical firms involves, but also goes significantly beyond, integrating
into global lead firms’ production networks. By starting in India, it is possible to see discontinuities between
practices serving growing markets in North America and Europe and the continuing, yet relatively under-
explored, orientation toward consumer markets in the global South. Participating in such networks is not just a
simple function of meeting different quality or safety standards, but also involves a distinct set of production,
market access, and innovation practices as were described here. While further distinctions, such as between
different firms, and to different markets within the South and North, warrant examination in future work to
further unpack what is often considered as India’s “pharmacy to the world”, the discontinuities pointed to here
highlight a crucial distinction within India’s pharmaceutical trade, one that has important implications for value
creation, enhancement, and capture processes. Moreover, especially in a context of a rapidly changing
geography of trade, the article has demonstrated why it is essential to go beyond an “inclusionary bias” centred
on firms participating in Northern lead firms’ networks if we hope to more fully understand economic
globalization and its territorial variegations.
34
Conceptually and epistemologically, the practice-oriented approach adopted here provides a valuable
means to explore the socio-spatial dynamics and development implications of trade involving the uneven and
“rising” global South in a multi-polar world. Through this approach, this article deepens our understanding of the
elements and activities constituting GPNs, highlighting the materials, meanings, identities, spaces, structural
features, agencies, and social interactions that stabilise them and create discontinuities between strands. Most
significantly, a practice perspective reveals some of the less tangible, yet critical, factors, processes, time-space
geographies, and performances shaping the governance of GPN strands. Such subtleties are more than this,
manifest materially and socially as key drivers of participation in, and value enhancement and value capture
through, global market integration. Starting from the perspective of the everyday worlds of firms of varying sizes
and capabilities in the global South it is possible to unpack the various opportunities and requirements for
participating in the world economy, as well as help understand how wider patterns of trade are constituted. This
is especially the case for South-South trade, where the discussion has tended to be framed around the
engagement of one country (e.g. China or India) in one continent (e.g. Africa).
Despite much heralding of the “rise of the South”, an association of South-South trade with lower entry
barriers, lower margins and higher volumes still appears to be pertinent here when compared with South-North
trade. Moreover, given the strong discontinuities between the Northern and Southern markets, it is not easy for
firms to switch practices between one strand and the other. South-South trade may, at least in the
pharmaceutical industry and for the immediate future, involve quite distinct business practices from those
involved in South-North trade. As such, important industrial, and particularly public health, questions remain
regarding whether there can be a more productive and socially beneficial balance between the often high-cost,
and thus often inaccessible, supply of medicines in the highly related Northern markets, and the much cheaper,
but sometimes weakly regulated, South-South trade in pharmaceuticals.
The bundling of practices can determine distinct network structures and evolutionary trajectories
(South-North or South-South) for value creation, enhancement and capture which, in the case of South-South
35
trade in India’s pharmaceutical sector, offers mostly opportunities for expanding volume, yet does not
automatically offer wider upgrading opportunities than trade with the global North. As such, further case
specific research is needed across and within industries, as well as different locations to understand the
development implications of emerging GPNs – particularly as they are manifest in value capture dynamics within
India and the global South more generally. The goal of this work should be to unpack the dynamics within South-
South GPNs, particularly in the context of the uneven “rise of the South”, avoiding new inclusionary bias within
such work. This could include both trade oriented towards relatively more prosperous countries and populations
within the global South, and start from the perspective of other developing countries as well as large, emerging
economies.
Acknowledgements
This article benefited from constructive feedback from the editor, Ali Rogers, as well as two anonymous
reviewers of Global Networks, which is highly appreciated. Feedback from participants in workshops on “Global
production networks and new contours of development” (Manchester, June 2015) and on “South-South trade
and local production: pharmaceuticals in the global South” (Manchester, May 2016) is also gratefully
acknowledged, especially Sudip Chaudhuri, Alex Hughes, Dinar Kale, Khalid Nadvi, Ken Shadlen and Giuliano
Russo. A National Science Foundation Doctoral Dissertation Research Improvement Grant (no. 1103231) and a
British Academy Small Research Grant supported the fieldwork and a University of Manchester Hallsworth
Research Fellowship provided Rory Horner with support for part of his time.
36
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i Our approach here is further inspired by Coe et al. (2014: 772) who note the potential of a practice perspective in GPN studies.ii While quality or branded generics are produced for higher-income groups in Southern markets, particularly in larger emerging economies, we focus on the key discontinuities between Northern and Southern end markets. iii Ranbaxy now operates under the name of Sun Pharmaceuticals, having been acquired in March 2015.iv Notable exceptions are South Africa and Brazil.
